Rights Issue

Pennon Group PLC

07 October 2026

 

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART, INTO, WITHIN OR FROM THE UNITED STATES, NEW ZEALAND, CHINA, SINGAPORE, HONG KONG, SOUTH AFRICA, JAPAN, THE UNITED ARAB EMIRATES AND ANY OTHER JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OR REGULATIONS OF SUCH JURISDICTION.

THIS ANNOUNCEMENT DOES NOT CONSTITUTE A PROSPECTUS (OR A PROSPECTUS EQUIVALENT DOCUMENT OR AN EXEMPTED DOCUMENT) AND INVESTORS SHOULD NOT SUBSCRIBE FOR, PURCHASE, OTHERWISE ACQUIRE, SELL OR OTHERWISE DISPOSE OF ANY SECURITIES REFERRED TO IN THIS ANNOUNCEMENT EXCEPT ON THE BASIS OF INFORMATION IN THE OFFERING CIRCULAR TO BE PUBLISHED BY THE COMPANY IN DUE COURSE IN CONNECTION WITH THE RIGHTS ISSUE. COPIES OF THE OFFERING CIRCULAR WILL, FOLLOWING PUBLICATION, BE AVAILABLE AT HTTPS://WWW.PENNON-GROUP.CO.UK/INVESTOR-INFORMATION. NEITHER THIS ANNOUNCEMENT NOR ANY PART OF IT SHOULD FORM THE BASIS OF OR BE RELIED ON IN CONNECTION WITH OR ACT AS AN INDUCEMENT TO ENTER INTO ANY CONTRACT OR COMMITMENT WHATSOEVER. NOTHING IN THIS ANNOUNCEMENT SHOULD BE INTERPRETED AS A TERM OR CONDITION OF THE RIGHTS ISSUE. 

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION.

FOR IMMEDIATE RELEASE.

7 October 2026

PENNON GROUP PLC

7 for 15 Rights Issue of 220,257,997 New Ordinary Shares at
250 pence per New Ordinary Share

Further to the separate announcement released this morning, the board of directors (the "Board") of Pennon Group plc (the "Company" or "Pennon") announces a proposed capital raise of approximately £550 million by way of a fully underwritten rights issue (the "Rights Issue") of 220,257,997 New Ordinary Shares at 250 pence per New Ordinary Share on the basis of 7 New Ordinary Shares for every 15 Existing Ordinary Shares.

The purpose of the Rights Issue is to enable Pennon, as part of a wider funding plan (the "Funding Plan"), to deliver its strategic plan to improve operational performance across the Group and to invest in the additional growth available through Ofwat's cost change process through the remainder of the AMP8 period to March 2030, whilst ensuring appropriate and sustainable gearing is maintained throughout.

The Rights Issue Price represents a 35.5% discount to the theoretical ex-rights price, based on the Closing Price of 452 pence per Ordinary Share on 6 October 2026 (being the last Business Day before the announcement of the terms of the Rights Issue).

HIGHLIGHTS

·      As referred to in the separate announcement, following a comprehensive review of the Group's operations and asset base, Pennon has today set out a strategic plan to restore and enhance operational performance across the Group, which is also expected to unlock further growth through Ofwat's cost change process. The strategic plan sets the direction for the remainder of AMP8 and determines the funding the Group requires.

·      Pennon's updated plan provides for capital investment of approximately £3.6 billion¹ in its regulated water businesses over AMP8, including the cost change programme. This represents around £1 billion more than its original plan for AMP8, taking into account planned efficiencies, which will now be reinvested into the business. This is expected to deliver growth in the RCV of its regulated water businesses of over 40% across AMP8, a step up from the 34% set out at the start of the AMP.

·      The Funding Plan, including the Rights Issue, will enable the Group to retain a prudent and efficient capital structure through to the end of the AMP8 period in March 2030. The gearing policy is unchanged: gearing for the regulated water businesses is targeted at no more than 65% of RCV throughout the AMP8 period, which is within the Group's long-term gearing policy of between 55-65%. Group gearing is anticipated to be a few percentage points higher than that of the regulated water businesses but is unlikely to exceed approximately 70% during the AMP8 period.

·      Pennon will rebase the dividend for the FY2026/2027 period and expects to set it at a level of approximately £125 million for the full year, compared with £138 million for the full year FY2025/2026. The rebased dividend will apply to both the interim and final dividend for FY2026/2027. Its policy will continue to be to grow dividend per share in line with CPIH from this rebased level.

·      Taking into account both the reduction in the total dividend and the effect of the Rights Issue, and adjusting for the bonus factor for comparability purposes, the implied underlying reduction in dividend per share for FY2026/2027 compared with FY2025/2026 is approximately 30%, with a dividend per share for FY2026/2027 of around 18 pence.

Further details of the Rights Issue and the Funding Plan, including a description of the background to and reasons for the Rights Issue and its principal terms, are set out below.

PUBLICATION OF THE IOC

A document (the "International Offering Circular" or "IOC") setting out full details of the Rights Issue has been published today and is available on the Group's website at www.pennon-group.co.uk/investor-information. The IOC will be posted to Shareholders who have elected to receive hard copies of shareholder documentation on 9 October 2026. The IOC is not a prospectus and has not been approved by the FCA or any other regulatory authority.

A copy of the IOC has been submitted to the National Storage Mechanism and will shortly be available for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism.

The preceding summary should be read in conjunction with the full text of this announcement, together with the IOC.

Unless the context otherwise requires, words and expressions defined in the IOC shall have the same meanings in this announcement.

INDICATIVE SUMMARY TIMETABLE OF PRINCIPAL EVENTS

Record Date for entitlements under the Rights Issue	Close of business on 6 October 2026
Announcement of the Rights Issue and publication of the IOC	7 October 2026
Posting of the IOC	9 October 2026
Despatch of relevant Provisional Allotment Letter(s) (to Qualifying Non-CREST Shareholders, Qualifying CSN Shareholders and Qualifying WaterShare+ Shareholders only)	9 October 2026
Existing Ordinary Shares marked "ex-rights" by the London Stock Exchange	8:00 a.m. on 12 October 2026
Admission of the New Ordinary Shares, and admission of, and commencement of dealings in, Nil Paid Rights and Fully Paid Rights on a multi-lateral trading facility of the London Stock Exchange; start of subscription period	8:00 a.m. on 12 October 2026
Latest time and date for acceptance and payment in full of PINK and BLUE Provisional Allotment Letters (in the case of Qualifying CSN Shareholders and Qualifying WaterShare+ Shareholders only)	11:00 a.m. on 22 October 2026
Latest time and date for acceptance and payment in full (in the case of Qualifying CREST Shareholders and Qualifying Non-CREST Shareholders only) and, in the case of Qualifying Non-CREST Shareholders, registration of renunciation of WHITE Provisional Allotment Letters	11:00 a.m. on 26 October 2026
Expected date of announcement of the results of the Rights Issue through a Regulatory Information Service	By 8:00 a.m. on 27 October 2026
Dealings in New Ordinary Shares (fully paid) commence on the London Stock Exchange	8:00 a.m. on 27 October 2026

Each of the times and dates above is indicative only and may be subject to change, in which event details of the new times and dates will be notified to the London Stock Exchange and, where appropriate, Shareholders through a Regulatory Information Service.

The Rights Issue is fully underwritten by Barclays Bank PLC and Morgan Stanley & Co. International plc (together, the "Underwriters"), acting as Joint Global Co-ordinators and Joint Bookrunners.

The person responsible for making this announcement on behalf of Pennon is Emma Hough, Interim Group General Counsel and Company Secretary.

For further information, please contact:

Pennon Group plc
Institutional equity investors and analysts
James Found - Investor Relations Media enquiries	[phone]
Mike Turner - FGS Global Harry Worthington	[phone]
Debt investors
Chris Tregenna - Group Treasurer	[phone]
Joint Global Co-ordinators, Joint Bookrunners and Joint Corporate Brokers
Barclays Bank PLC	[phone]
Richard Bassingthwaighte Iain Smedley Chris Madderson Tom Upton
Morgan Stanley & Co. International plc	[phone]
Andrew Foster Josh Williams George Chalaris Emma Whitehouse
Slaughter and May is acting as legal adviser to Pennon.
Ashurst Perkins Coie is acting as legal adviser to the Underwriters.

IMPORTANT NOTICES

This announcement has been issued by and is the sole responsibility of the Company. The information contained in this announcement is for background purposes only and does not purport to be full or complete. No reliance may or should be placed by any person for any purpose whatsoever on the information contained in this announcement or on its accuracy, fairness or completeness. The information in this announcement is subject to change without notice.

This announcement is not a prospectus (or prospectus equivalent document) and investors should not subscribe for, purchase, otherwise acquire, sell or otherwise dispose of any securities referred to in this announcement except on the basis of information in the IOC published by the Company today in connection with the Rights Issue. Neither this announcement nor any part of it should form the basis of or be relied on in connection with or act as an inducement to enter into any contract or commitment whatsoever. Nothing in this announcement should be interpreted as a term or condition of the Rights Issue.

A copy of the IOC is available on the Company's website at www.pennon-group.co.uk/investor-information. Neither the content of the Company's website nor any website accessible by hyperlinks on the Company's website is incorporated in, or forms part of, this announcement. The IOC provides further details of the securities being offered pursuant to the Rights Issue.

This announcement is for information purposes only and is not intended to constitute, and should not be construed as, an offer to sell or issue, or a solicitation of any offer to purchase, subscribe for or otherwise acquire, the Nil Paid Rights, the Fully Paid Rights and the New Ordinary Shares of the Company in the United States, New Zealand, China, Singapore, Hong Kong, South Africa, Japan, the United Arab Emirates or in any other jurisdiction where such offer or sale would be unlawful and, subject to certain exceptions, should not be distributed, forwarded to or transmitted in or into any jurisdiction, where to do so might constitute a violation of local securities laws or regulations. The distribution of this announcement, the IOC, and any other document relating to the offering or transfer of Nil Paid Rights, Fully Paid Rights or New Ordinary Shares into jurisdictions other than the United Kingdom may be restricted by law, and, therefore, persons into whose possession this announcement, the IOC, and/or any accompanying documents comes should inform themselves about and observe any such restrictions. Any failure to comply with any such restrictions may constitute a violation of the securities laws of such jurisdiction. In particular, subject to certain exceptions, this announcement, the IOC and the Provisional Allotment Letters (once printed) should not be distributed, forwarded to or transmitted in or into the United States, New Zealand, China, Singapore, Hong Kong, South Africa, Japan, the United Arab Emirates, or any other jurisdiction where the extension or availability of the Rights Issue (and any other transaction contemplated thereby) would breach any applicable law or regulation.

This announcement does not constitute a recommendation concerning any investor's options with respect to the Rights Issue. The price and value of securities can go down as well as up. Past performance is not a guide to future performance. The contents of this announcement are not to be construed as legal, business, financial or tax advice. Each Shareholder or prospective investor should consult his, her or its own legal adviser, business adviser, financial adviser or tax adviser for legal, financial, business or tax advice.

NOTICE TO ALL INVESTORS

This announcement and any offer of securities to which it relates are only addressed to and directed at persons (i) who have professional experience in matters relating to investments who fall within the definition of "investment professionals" in Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "Order"); (ii) who fall within Article 49(2)(a) to (d) of the Order; or (iii) to whom it may otherwise lawfully be communicated.

Each of Barclays Bank PLC and Morgan Stanley & Co. International plc is authorised by the Prudential Regulation Authority ("PRA") and regulated by the FCA and the PRA in the United Kingdom. Each of Barclays Bank PLC and Morgan Stanley & Co. International plc is acting exclusively for the Company and no one else in connection with this announcement and the Rights Issue and will not regard any other person as a client in relation to the Rights Issue and will not be responsible to anyone other than the Company for providing the protections afforded to its clients nor for providing advice to any person in relation to the Rights Issue or any other matter, transaction or arrangement referred to in this announcement.

None of Barclays Bank PLC and Morgan Stanley & Co. International plc nor any of their respective affiliates, directors, officers, employees or advisers owes or accepts any duty, liability or responsibility whatsoever (whether direct or indirect, whether in contract, in tort, under statute or otherwise) which they might otherwise have in connection with the Rights Issue, this announcement, any statement contained herein, or otherwise.

The Underwriters may, in accordance with applicable legal and regulatory provisions and subject to certain restrictions in the Underwriting Agreement, engage in transactions in relation to the Nil Paid Rights and the Ordinary Shares. Further to any contractual obligations that may be in place between the Company and the Underwriters, in the event that the Underwriters or their respective affiliates subscribe for New Ordinary Shares which are not taken up by Qualifying Shareholders, the Underwriters and their respective affiliates may for a limited period co-ordinate disposals of such shares in accordance with applicable law and regulation. Except as required by applicable law or regulation, the Underwriters and their respective affiliates do not propose to make any public disclosure in relation to such transactions.

NOTICE TO US INVESTORS

This announcement does not constitute an offer to sell, or a solicitation of offers to purchase or subscribe for, securities in the United States. The securities being offered pursuant to the Rights Issue have not been and will not be registered under the US Securities Act of 1933, as amended (the "US Securities Act"), or with any securities regulatory authority or under the relevant securities laws of any state or other jurisdiction of the United States, and may not be offered, sold, resold, pledged, taken up, exercised, renounced, delivered, distributed or transferred, directly or indirectly, into or within the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the US Securities Act and in compliance with any applicable securities laws of any state or other jurisdiction of the United States. No public offering of the securities has been or will be made in the United States.

INFORMATION TO DISTRIBUTORS

Solely for the purposes of the product governance requirements of Chapter 3 of the FCA Handbook Product Intervention and Product Governance Sourcebook (the "UK Product Governance Requirements"), and disclaiming all and any liability, whether arising in tort, contract or otherwise, which any "manufacturer" (for the purposes of the UK Product Governance Requirements) may otherwise have with respect thereto, the New Ordinary Shares have been subject to a product approval process, which has determined that the New Ordinary Shares are: (a) compatible with an end target market of retail investors and investors who meet the criteria of professional clients and eligible counterparties, each as defined in Chapter 3 of the FCA Handbook Conduct of Business Sourcebook; and (b) eligible for distribution through all permitted distribution channels (the "Target Market Assessment"). Notwithstanding the Target Market Assessment, "distributors" (for the purposes of the UK Product Governance Requirements) should note that: the price of the New Ordinary Shares may decline and investors could lose all or part of their investment; the New Ordinary Shares offer no guaranteed income and no capital protection; and an investment in the New Ordinary Shares is compatible only with investors who do not need a guaranteed income or capital protection, who (either alone or in conjunction with an appropriate financial or other adviser) are capable of evaluating the merits and risks of such an investment and who have sufficient resources to be able to bear any losses that may result therefrom. The Target Market Assessment is without prejudice to any contractual, legal or regulatory selling restrictions in relation to the offer of New Ordinary Shares. Furthermore, it is noted that, notwithstanding the Target Market Assessment, the Underwriters will only procure investors who meet the criteria of professional clients and eligible counterparties.

For the avoidance of doubt, the Target Market Assessment does not constitute: (i) an assessment of suitability or appropriateness for the purposes of Chapters 9A or 10A, respectively, of the FCA Handbook Conduct of Business Sourcebook; or (ii) a recommendation to any investor or group of investors to invest in, or purchase, or take any other action whatsoever with respect to, the New Ordinary Shares. Each distributor is responsible for undertaking its own target market assessment in respect of the New Ordinary Shares and determining appropriate distribution channels.

FORWARD-LOOKING STATEMENTS

This announcement may contain projections and other forward-looking statements. The words "believe", "expect", "anticipate", "estimate", "intend" and "plan" and similar expressions identify forward-looking statements. All statements other than statements of historical facts included in this announcement, including, without limitation, those regarding the Company's financial position, business strategy, potential plans and potential objectives, are forward-looking statements.

None of the Company, its officers, advisers or any other person gives any representation, assurance or guarantee that the occurrence of the events expressed or implied in any forward-looking statements in this announcement will actually occur, in part or in whole.

By their nature, forward-looking statements involve assumptions, risks and uncertainties. Such forward-looking statements may involve known and unknown risks, uncertainties and other factors, which may cause the Company's actual results, performance or achievements to be materially different from those expected, any future results, performance or achievements expressed or implied by such forward-looking statements. Readers are advised to read the IOC and the information incorporated by reference therein in their entirety, and, in particular, the section of the IOC headed Part I (Risk Factors), for a further discussion of the factors that could affect the Group's future performance and the industry in which it operates. In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements in this announcement, the IOC and/or the information incorporated by reference into the IOC may not prove to be accurate or may not occur. Prospective investors should therefore carefully review the IOC. Such forward-looking statements are based on numerous assumptions regarding the Company's present and future business strategies and the environment in which the Company will operate in the future.

Nothing in this announcement is intended as a profit forecast or estimate for any period, and no statement in this announcement should be interpreted to mean that earnings or earnings per share or dividend per share for the Company for the current or future financial years would necessarily match or exceed the historical published earnings or earnings per share or dividend per share for the Company.

The forward-looking statements in this announcement speak only as at the date of this announcement. To the extent required by applicable law or regulation (including as may be required by the Companies Act, the POATR, the PRM Sourcebook, the UK Listing Rules, UK MAR, the Disclosure Guidance and Transparency Rules and FSMA), the Company will update or revise the information in this announcement. Otherwise, neither the Company nor the Underwriters assume any obligation to update or provide any additional information in relation to such forward-looking statements. Additionally, statements of the intentions or beliefs of the Board and/or the Directors reflect the present intentions and beliefs of the Board and/or Directors, respectively, as at the date of this announcement and may be subject to change as the composition of the Board alters, or as circumstances require.

PENNON GROUP PLC

7 FOR 15 RIGHTS ISSUE OF 220,257,997 NEW ORDINARY SHARES AT
 250 PENCE PER NEW ORDINARY SHARE

1. INTRODUCTION

Today the Board of Pennon announces a proposed capital raise of approximately £550 million by way of a fully underwritten Rights Issue of 220,257,997 New Ordinary Shares at 250 pence per New Ordinary Share on the basis of 7 New Ordinary Shares for every 15 Existing Ordinary Shares. The Rights Issue Price represents a 35.5% discount to the theoretical ex-rights price, based on the Closing Price of 452 pence per Ordinary Share on 6 October 2026 (being the last Business Day before the announcement of the terms of the Rights Issue).

As we set out in our results for the year ended 31 March 2026, we have been undertaking a detailed strategic review of our operational discipline and capital investment programme, in order that we may meet the commitments we have made to customers and the communities we serve as well as reach the industry leading standards we aspire to achieve. Following this comprehensive review of the Group's operations and asset base, this announcement sets out our strategic plan to achieve those ambitions and the funding required to deliver that plan. The Rights Issue forms a key part of that funding plan and will enable the Group to deliver increased levels of growth over the period to 2030, whilst supporting the operational business to deliver on its reset plans, leading to improved operational performance.

Summary

Our strategic plan reflects a programme to restore and enhance operational performance across the Group. It sets the direction for the remainder of AMP8 and determines the funding the Group requires.

Key operational pillars of our strategic plan are focused on: people and culture; ensuring operational excellence; improving asset management and reliability; accelerating environmental performance; and customer transformation.

We believe these initiatives will improve operational performance and reliability across the Group and will require additional investment to support delivery of improved outcomes.

We expect the strategic plan also to unlock further growth. Our strategic review identified the need for increased investment in asset health, and Ofwat's cost change process, run on an annual basis from 2026-2028, provides the mechanism to recognise such additional investment through RCV growth. We are targeting additional RCV of £400 million² through the cost change process in 2026 and subsequent years. The £230 million of nominal value (£190 million in 2022/23 prices) provisionally allowed at Ofwat's draft determination on the 2026 cost change comprises £108 million of asset health investment in our wastewater assets, £109 million of asset health investment in our water assets and around £13 million to support sustainable growth and service delivery. Representations on the draft determination were submitted on 24 September 2026 and Ofwat's final determination is expected by not later than 15 December 2026. Our main representation recognised the benefit of the additional investment supported by Ofwat and focused on reiterating the need for in-period revenues to ensure near-term cash returns on the additional investment being proposed.

To enable us to deliver on this strategic plan and the incremental growth opportunity afforded by cost change, Pennon has developed a Funding Plan comprising:

·      continued use of ordinary course debt funding;

·      reinvestment of previously identified efficiencies;

·      the proposed sale of Pennon Power;

·      a rebased dividend of £125 million for the FY2026/2027 financial year; and

·      the Rights Issue of approximately £550 million announced today.

The Group will retain a prudent and efficient capital structure. Gearing for the regulated water businesses is targeted at no more than 65% of RCV throughout the AMP8 period, which is within our long-term gearing policy of between 55-65%. Group gearing is anticipated to be a few percentage points higher than that of the regulated water businesses but is unlikely to exceed approximately 70% during the AMP8 period.

2. BACKGROUND TO AND REASONS FOR THE RIGHTS ISSUE

Pennon is an environmental infrastructure group focused on the UK regulated water sector and complementary activities. The Company owns South West Water, which, operating through the South West Water, Bournemouth Water, Bristol Water and Isles of Scilly brands, provides regulated water and wastewater services in Devon, Cornwall, the Isles of Scilly and small areas of Dorset and Somerset, as well as water-only supply operations in Bournemouth and across parts of Dorset, Hampshire, Wiltshire, Bristol and the surrounding areas. The Company also owns SES Water, which provides water-only supply operations in areas of the South East of England. Operating across these regions, Pennon delivers more than one billion litres of water to over four million people every day. The Group also owns interests in three national non-household water retail businesses: Pennon Water Services (an 80% holding), Water2Business (a 30% holding) and SES Business Water (100% holding). The Company also owns Pennon Power, the Group's renewables investment arm, which is developing four renewable projects across the UK.

Operational review and outcomes

Our results for the year ended 31 March 2026 reflected a challenging year operationally. Exceptional storms and sustained rainfall, coupled with a step-up in performance targets and penalty rates at the start of AMP8, resulted in a net operational outcome delivery incentive (ODI) penalty of approximately £58 million³. In this context, it is positive that our Pollution Incident Reduction Plan delivered a reduction in pollution incidents of approximately 34% year on year, and storm overflow use fell by 17% with spill duration reducing by approximately 25%. However, our performance across a number of other measures fell short of the standards our customers expect and of the commitments we have made.

Pennon has established strengths on which our strategic plan builds. SES Water maintained its industry-leading water quality position in the year, South West Water maintained 100% bathing water compliance for the fifth consecutive year, and Bristol Water achieved upper quartile performance in respect of customer service. Performance has been strong on several measures over many years, but the step-up in targets and penalty rates at the start of AMP8 exposed weaknesses in others. It is those areas that our strategic plan addresses.

Keith Haslett was appointed as Chief Executive Officer in October 2025 and joined the Group on 1 April 2026. The Board asked Keith, as our new CEO, to lead a comprehensive strategic review of the Group's operations, asset base and capital delivery. He provided an initial update to investors with Pennon's results on 10 June 2026 and has subsequently completed the review. The review concluded that sustained improvement requires a fundamental change in how we plan, deliver and maintain our assets, together with a step-up in investment to maximise asset health and resilience. It also concluded that the pace of improvement has been held back by the way accountability sits within the organisation and gaps in the capability needed to deliver it.

The operational reset is organised around five pillars:

·      people and culture - we are building a high-performance culture with clear accountability and the capability to deliver.

·      operational excellence - we are targeting supply interruptions, leakage and water quality in our water business, and pollutions, storm overflows, treatment compliance and the consolidation of our bioresources operations in our wastewater business, improving ways of working, increasing investment in carefully targeted areas, and driving efficient teams through insourcing key strategic capabilities.

·      asset management and reliability - we are improving asset health and network reliability through disciplined investment, maintenance excellence and better asset data.

·      environmental programme - we are accelerating environmental performance to target continued reduction in pollution incidents.

·      customer transformation - we are modernising our customer and billing platform, improving field service efficiency and expanding digital and self-service channels.

We have a detailed plan of interventions, to strengthen and remediate our asset base, whilst targeting key operational performance metrics, that we recognise are important to both our customers and our wider stakeholders.

These interventions take time to work through into reported performance, and we anticipate we will continue to incur ODI penalties over the period to 2030. However, we are targeting at least a 50% reduction in such penalties on an annualised basis compared to current amounts.

We recognise the need to move at pace and have already taken a number of important initial actions. We have refreshed the leadership of the Group, with a new Chief Asset Officer and Chief People Officer now in place. We have also changed the leadership of the Drinking Water Services business, appointing Ian Cain as interim Managing Director, and aligned our Executive Team to driving better performance with clear accountabilities.

From an operational excellence perspective, we have already started to in-source our leakage technicians so that ownership of performance sits with our own teams. The Group believes this will improve our speed of response and has the potential to save approximately £10 million a year in operating resource costs. We are also strengthening operational control through our Integrated Control Centre programme and implementing additional, enhanced network monitoring.

Asset management and capital delivery have been core focus areas to drive outcomes across our regions. We have already centralised the asset management function under the newly created role of Chief Asset Officer, bringing asset planning, asset delivery and asset reliability together across the full asset lifecycle. We have also reviewed and reprioritised our capital investment plan towards operational outcomes and accelerated projects that deliver benefits earlier. We have worked to ensure that we are driving the right outcomes at the right cost and have started the in-sourcing of programme managers and cost managers, with a new Asset Delivery Director also appointed. We launched our Maintenance Excellence programme across the asset base, to ensure we maintain best practice ways of working to drive forward our investment in asset health.

Our environmental programme has been a longstanding focus for the business, and we saw improvement in the past year in terms of normalised pollutions. However, we recognise that there is further to go, and we remain focused on improving in this area, with additional targeted interventions to support the Pollutions Incident Reduction Plan already underway. We are also ensuring we are focused on the revised metrics being introduced into the Environmental Performance Assessment ("EPA") by the Environment Agency and targeting improved performance in these areas. Despite this, we anticipate that achieving our previously stated objective of a 4* EPA outcome by 2028 is now very challenging, as we see increasing scrutiny across the sector, particularly in respect of pollution performance.

Transformation of the customer experience is critical to rebuilding trust across our regions. Bristol Water sees continued strong performance in this area. However, we are focusing efforts in South West Water in particular, as we plan for the implementation of our new customer experience platform, "Fusion", to go live in Q3 FY27. We believe this will improve the digital experience for our customers and allow simpler, more automated journeys for customers whilst reducing contact time to improve both efficiency and the service we can provide to our customers.

This operational reset is targeted at improving operational performance through improved ways of working and technology-led enablers, whilst at the same time starting to deliver improved asset health and visibility. We anticipate that efficiencies we had previously targeted in terms of regulatory outperformance will be reinvested into the business to support this programme and to allow targeted investment to improve operational performance in the areas that need it most.

Cost change programme and driving incremental RCV growth

Ofwat's cost change mechanism allows a company to apply, within a regulatory period, for additional allowed investment where it falls under certain categories, set out by Ofwat as part of the Final Determination. These categories include asset health, cyber security, growth, and PFAS / forever chemicals, with additional detail set out by Ofwat in the 2026 process in respect of categories for consideration under asset health. Further guidance will be provided by Ofwat for the 2027 cost change process.

This annual process has been introduced for the first time by Ofwat in AMP8 and provides recognition of the additional investment required to support asset health across the sector. As indicated at our results in June 2026, we applied to Ofwat for additional investment in asset health and cyber security. The areas covered by the application target: the maintenance and enhancement of our water and wastewater assets, investment to support sustainable growth and service delivery, and the strengthening of our cyber resilience.

The draft determination provided by Ofwat allowed £230 million of incremental investment (in nominal prices; £190 million in 2022/23 prices), representing 76% of our requested amount. This reflects £108 million of investment in wastewater asset health measures, £109 million in water asset health measures and around £13 million in growth-related assets in our wastewater business. This investment will directly strengthen the asset performance across our regions, and reflects investment in our unique infrastructure, with projects such as the Newquay wastewater treatment works upgrade recognising the challenges resulting from both increased growth in the local population and the impact of tourist events, such as the well-known Boardmasters festival, on our local infrastructure.

We also intend, subject to Ofwat approvals and progress in the delivery of this year's cost change measures, to make further use of the cost change processes in 2027 and 2028. We expect that this will enable further investment in measures targeted on the priorities of our customers and other stakeholders, with an estimate of around £170 million of further investment across 2027 and 2028 anticipated through those future processes. Such additional investment will only arise if we can be satisfied that any such further investment will be applied to the upgrade and improvement of our assets, reducing risks and making our assets more resilient to both population growth and the changing expectations of customers and stakeholders.

Our strategic plan provides for capital investment of approximately £3.6 billion⁴ in our regulated water businesses over AMP8, including the cost change programme. This reflects around £1 billion⁵ of further investment compared with our original plan for AMP8, taking into account planned efficiencies, which will now be reinvested into the business.

This investment is expected to deliver growth in the RCV of our regulated water businesses of over 40% across AMP8, a step up from the 34% set out at the start of the AMP and equivalent to a compound annual growth rate of approximately 7% against approximately 6% previously communicated at the start of AMP8. If achieved, that growth will deliver an increased, asset-backed and inflation-linked, basis for value for our Shareholders, with further growth anticipated into AMP9 as we continue to drive forward improvements in our asset base to support a reset in our operational performance.

We are already under way with refreshed leadership and teams, currently delivering the operational reset from our strategic review, asset level action plans, and our capital delivery partnership is reprioritising capital such that it is targeted at the measures where our performance most needs to improve.

Pennon Power

The Group is considering the disposal of Pennon Power with a proportion of divestment proceeds intended to be used to reduce Group debt, support a greater focus on our core water business and allow the Group to reinvest capital in other projects like 'behind the meter' renewable generation, which will support delivery of the Group's energy consumption strategy, offset exposure to power prices and reduce volatility of Group earnings.

Delivering for all stakeholders

For customers, our operational reset is designed to deliver a safer, cleaner and better performing service. Alongside the operational improvements, we continue to support customers with the cost of their bills, with an increase of approximately 11% in the past year in the number of customers on one or more of our support tariffs. Our customer transformation programme is expected to make it simpler for customers to interact with us and to reduce our cost to serve.

For the environment, we are accelerating our environmental programme, building on the reduction in pollution incidents and storm overflow use achieved in the past year, and continuing our work on natural capital, including the restoration of 250 hectares of peatland during the year. The proposed divestment of Pennon Power will also allow for reinvestment in 'behind the meter' renewable generation at our highest energy consuming sites, which is expected to improve resilience, support our net zero commitments and reduce greenhouse gas emissions.

For our employees, the reset is as much about capability and accountability as it is about investment. We are insourcing capability where ownership of performance matters most, investing in training and operator capability with our own training centre, and setting clear performance measures supported by stronger lines of operational assurance.

For Shareholders, the plan is intended to restore operational performance, increase RCV growth and re-establish a dividend that is expected to grow in line with CPIH from a sustainable base. Taken together, we believe the plan delivers for customers, for the environment, for our employees and for our Shareholders, supported by a balance sheet that is appropriately structured to support the Group's growth to 2030.

Dividend policy

As part of our strategic review, we have reconsidered the Group's dividend policy, appreciating the importance of dividend income to our Shareholders whilst also recognising the need to ensure that dividend payments remain sustainable through the AMP and beyond.

We will rebase the dividend for the FY2026/2027 period and expect to set it at a level of approximately £125 million for the full year, compared with £138 million for the full year FY2025/2026. The rebased dividend will apply to both the interim and final dividend for FY2026/2027.

Our policy will continue to be to grow dividend per share in line with CPIH from this rebased level.

Taking into account both the reduction in the total dividend and the effect of the Rights Issue, and adjusting for the bonus factor for comparability purposes, the implied underlying reduction in dividend per share for FY2026/2027 compared with FY2025/2026 is approximately 30%, with a dividend per share for FY2026/2027 of around 18 pence.

The Board has not taken this decision lightly. We want to set the business up to be sustainable for the future, ensuring that Pennon is in a stronger funding position from which to deliver on our new operational reset whilst also allowing the Group to realise the growth opportunities in AMP8.

Funding approach to deliver the plan

We acknowledge the demands that the proposed funding package asks of our Shareholders, and its timing following our prior funding measures. This equity raise follows our strategic review and fully factors in the new growth opportunity from Ofwat's cost change process. Prior funding, notably from our equity raise in February 2025, saw funds allocated to the delivery of the Final Determination by Ofwat in December 2024. That funding remains in place to deliver on the initial plans and performance ambitions.

Our strategic review has identified both the need for focused investment to support improved performance, as well as further opportunity to support improved asset health, performance and reliability as a result of Ofwat's cost change process. This is particularly critical in the context of a sector backdrop that continues to provide high levels of scrutiny and challenge. We raised £490 million of equity capital in February 2025 which at the time we expected would be sufficient to fully fund the Group for AMP8. The critical changes since then include an expected increase in capex over the period of approximately £1 billion⁶, combining the current and expected cost change programme, additional steps to strengthen and improve our asset base, and allowance for AMP9 transition spend. As such, we are reinvesting expected totex outperformance into the business. The Board firmly believes these are the right changes for the business and our stakeholders, but they do require additional funding measures. As such, our strategic plan requires a comprehensive reassessment of our funding.

This investment spend will set us up to deliver the remainder of the revised AMP8 plans, as well as the first three years of the cost change process agenda, a high growth, accelerated capex plan to build better, more resilient water and wastewater assets that can deliver for all customers.

Our equity funding for the period to 2030, based on both the previous equity raise and the increased investment of this Rights Issue, while making full allowance for the reinvestment of previously identified efficiencies and supporting an operational turnaround in the regulated water business, is expected to support our more than 40% growth in RCV, gearing in line with our long-term gearing policy and reflects a conservative approach to ensuring a continued sustainable balance sheet and financial resilience.

Since the year end results on 10 June 2026, we have also completed financing actions in respect of £700 million of our debt portfolio to ensure an optimised financing position, including introducing fixed to floating swaps, inflation swaps and index-linked issuances. These steps were taken to manage the Group's debt portfolio, provide support to our credit rating metrics and reduce financing costs. In addition, we have separately identified approximately £600 million of further index-linked debt capacity either through new issuances or derivative instruments to enable us to continue to optimise our fixed and index-linked debt proportions to support our credit rating metrics further. We will continue to seek to optimise our overall Group portfolio through the use of a range of debt instruments, as appropriate.

The Rights Issue and rebased dividend support the increased growth in the RCV of our regulated water businesses over the period of AMP8, with the balance funded from debt, efficiencies, cash generated by the business and from the proposed sale of Pennon Power.

The Funding Plan has been calibrated to a prudent operating case. It targets gearing for the regulated water businesses within our 55-65% policy range throughout AMP8 and preserves headroom within that range, providing capacity to absorb downside risks. Further mitigations remain available to us if required, including additional cost reduction measures and a slower pace of discretionary investment.

We remain committed to maintaining investment grade credit ratings within the regulated water businesses, although we acknowledge the pressure that the operational performance of South West Water will have on the credit ratings. This underlines the importance of continuing the conservative approach to balance sheet management and disciplined capital allocation that has served the Group well.

Use of proceeds

The Rights Issue is expected to raise approximately £550 million in gross proceeds and approximately £530 million in net proceeds, after deduction of estimated commissions, fees and expenses.

The net proceeds will be used to fund the increased investment in our regulated water businesses described above, including the cost change reopener programme, and to maintain gearing within our long-term policy range throughout AMP8.

WaterShare+

The Directors recognise the position of the Company's WaterShare+ Shareholders. The WaterShare+ Schemes, launched in 2020 and 2022 and endorsed by Ofwat, allow our customers to share in the success of the business, and around 80,000 of our customers are now Shareholders as a result.

WaterShare+ Shareholders will participate in the Rights Issue on exactly the same basis as all other Qualifying Shareholders. Each will be entitled to subscribe for New Ordinary Shares in proportion to their existing holding and may take up their rights in full or in part, sell some or all of them, or allow them to lapse. Entitlements will be rounded down to the nearest whole number of New Ordinary Shares, and fractional entitlements will be aggregated and sold in the market on the same terms that apply to all other Shareholders. Consistent with usual practice, net proceeds of sale of less than £5.00 will accrue for the benefit of the Company, which intends to apply such proceeds towards the Better Futures Fund.

3. CURRENT TRADING AND OUTLOOK

The expected outlook for the current financial year remains consistent with expectations set out in the 2026 Annual Report and Accounts, with underlying EBITDA expected to increase by 5%-10% compared with 2025/2026. In addition, non-underlying costs are now anticipated in respect of the following items:

·      £9-12 million of transformation and technological costs of the Group, notably in respect of the ongoing customer experience platform implementation;

·      £12.9 million of costs related to the settlement of the DWI prosecution in respect of the May 2024 Brixham and Kingswear water quality incident and the Environment Agency prosecutions and claims in respect of historical discharges into sensitive watercourses, including in respect of the fine received on 29 September 2026; and

·      an impairment charge of around £33 million in respect of the development of a desalination plant in Cornwall. Following a detailed assessment as part of our strategic review, we have concluded that the plant is no longer viable and, as a result, the project is considered fully impaired.

The above items will be subject to a net deferred tax credit.

4. PRINCIPAL TERMS AND CONDITIONS OF THE RIGHTS ISSUE

4.1 Overview

Pennon proposes to raise gross proceeds of approximately £550 million (approximately £530 million after deduction of estimated commissions, fees and expenses) by way of the Rights Issue.

(A) Pricing

The Rights Issue Price represents a discount of 44.7% to the Closing Price of 452 pence per Existing Ordinary Share on 6 October 2026 (being the last Business Day before the announcement of the terms of the Rights Issue) and a discount of 35.5% to the theoretical ex-rights price of 387.73 pence per Existing Ordinary Share, by reference to the Closing Price on the same date. Upon completion of the Rights Issue, the New Ordinary Shares will represent approximately 31.8% of the Company's enlarged issued ordinary share capital (excluding any shares held in treasury) following the Rights Issue.

The Rights Issue Price has been set, following discussions with major Shareholders, at the level which the Board considers necessary to ensure the success of the Rights Issue, taking into account the aggregate proceeds to be raised. The Board believes that the Rights Issue Price, and the discount which it represents, is appropriate.

(B) Dilution

The Rights Issue will result in 220,257,997 New Ordinary Shares being issued and the number of Ordinary Shares (excluding any shares held in treasury) being increased by approximately 46.7%.

If a Qualifying Shareholder does not (or is not permitted to) take up any New Ordinary Shares under the Rights Issue, such Qualifying Shareholder's shareholding in Pennon will be diluted by up to 31.8% as a result of the Rights Issue.⁷

4.2 Key terms

On and subject to, among other things, the terms and conditions of the Rights Issue, 220,257,997 New Ordinary Shares will be offered by way of rights at the Rights Issue Price of 250 pence per New Ordinary Share to Qualifying Shareholders on the basis of:

7 New Ordinary Shares for every 15 Existing Ordinary Shares

held and registered in their name at close of business on the Record Date (and so in proportion to the number of Existing Ordinary Shares then held, subject to fractional entitlements).

New Ordinary Shares will be provisionally allotted (nil paid) to all Qualifying Shareholders. However, Provisional Allotment Letters will not be sent to, and Nil Paid Rights will not be credited to CREST stock accounts of, Qualifying Shareholders with registered addresses in the United States or in any of the other Excluded Territories, except where the Company and the Underwriters are satisfied that such action would not result in the contravention of any registration or other legal or regulatory requirement in such jurisdiction.

Entitlements to New Ordinary Shares under the Rights Issue will be rounded down to the nearest whole number and fractions of New Ordinary Shares will not be provisionally allotted to Qualifying Shareholders. Holdings of Existing Ordinary Shares in certificated form, holdings of Existing Ordinary Shares in uncertificated form, holdings of Existing Ordinary Shares through the Corporate Sponsored Nominee and holdings of Existing Ordinary Shares through the WaterShare+ Nominee, will each be treated as separate holdings for the purpose of calculating entitlements under the Rights Issue.

Any fractional entitlements to New Ordinary Shares which arise will be aggregated into whole New Ordinary Shares and sold in the market on behalf of the relevant Shareholders. The total proceeds of the sale (net of related expenses (including any applicable brokerage fees and commissions and amounts in respect of related irrecoverable VAT)) due will be paid in due proportion to each of the relevant Shareholders. Any proceeds of sale (net of related expenses (including any applicable brokerage fees and commissions and amounts in respect of related irrecoverable VAT)) due to each of the relevant Shareholder(s) of less than £5.00 will be aggregated and will accrue for the benefit of the Company, and the Company intends to apply such proceeds towards the Better Futures Fund.

The Rights Issue has been fully underwritten by the Underwriters in accordance with the terms and subject to the conditions of the Underwriting Agreement, details of which are set out in section 6.1 (Underwriting Agreement) of Part XIV (Additional Information) of the IOC.

The Rights Issue is conditional upon (among other things): (i) the Underwriting Agreement having become unconditional in all respects (save for the condition relating to Admission); and (ii) Admission becoming effective by not later than 8:00 a.m. on 12 October 2026 (or such later time and/or date as the Company and the Underwriters each acting in good faith may agree in writing).

Certain resolutions authorising the allotment of further shares in the Company and the waiver of pre-emption rights in connection with a rights issue were passed at the 2026 Annual General Meeting. These authorities will be relied upon for the purposes of the Rights Issue.

The New Ordinary Shares will be admitted to listing on the equity shares (commercial companies) category of the Official List. Application has been made to the London Stock Exchange for the New Ordinary Shares to be admitted to trading on its main market for listed securities. It is expected that the Rights (Nil and Fully Paid) will be admitted to trading on a multi-lateral trading facility of the London Stock Exchange. It is expected that Admission will become effective on 12 October 2026, that dealings in the Rights (Nil and Fully Paid) will commence as soon as practicable after 8:00 a.m. on that date, and that dealings in the New Ordinary Shares (fully paid) will commence on the London Stock Exchange at the time and date shown in the Expected Timetable of Principal Events set out in the IOC.

The New Ordinary Shares will, when issued and fully paid, rank pari passu in all respects with, and will carry the same voting and dividend rights as, the Existing Ordinary Shares.

Overseas Shareholders, including Shareholders resident in the United States, should refer to section 7 (Overseas Shareholders) of Part VIII (Terms and Conditions of the Rights Issue) of the IOC for further information regarding their ability to participate in the Rights Issue.

Some questions and answers, together with details of further terms and conditions of the Rights Issue, including the procedure for acceptance and payment and the procedure in respect of rights not taken up, are set out in Part VII (Questions and Answers about the Rights Issue) and Part VIII (Terms and Conditions of the Rights Issue) of the IOC.

5. DIRECTORS' INTENTIONS

The Directors consider that the Rights Issue is in the best interests of Pennon and the Shareholders of Pennon taken as a whole. Each Director who holds Existing Ordinary Shares has irrevocably undertaken to take up in full their rights to subscribe for New Ordinary Shares under the Rights Issue. Further details are set out in section 6.2 of Part XIV (Additional Information) of the IOC.

6. RISK FACTORS AND FURTHER INFORMATION

Shareholders' attention is drawn to the Risk Factors set out in Part I (Risk Factors) of the IOC. Shareholders should read the whole of the IOC before deciding on the action to take in respect of the Rights Issue.

Notes

¹ Nominal prices.

² Estimated nominal value at the end of AMP8.

³ Net penalty (in 2022/23 prices) for ODIs and measures of experience (MeXs) across water and wastewater for both in-period and end of AMP measures, reflecting adjustments for items under review with Ofwat and third-party impacts.

⁴ Nominal prices.

⁵ Nominal prices.

⁶ Nominal prices.

⁷ For the purposes of calculating: (i) the number of New Ordinary Shares to be issued pursuant to the Rights Issue; (ii) the specified increases to the Company's issued ordinary share capital resulting from the Rights Issue; and (iii) the specified dilutive effect of the Rights Issue, the issuance of any Ordinary Shares in respect of the vesting or exercise of any awards under the Share Plans which may occur between the Latest Practicable Date and the completion of the Rights Issue and any shares held in treasury have been disregarded.

 

END